LSDfi ecosystem and LST projects & protocols

From Staking to Freedom: Discover the LSDfi Landscape and its Projects

In this ever-evolving landscape, staying informed and understanding these new developments becomes crucial. This is why we have penned this comprehensive article on LSDfi. The primary aim of this piece is to provide our readers with a thorough understanding of liquid staking tokens (LSTs), the potential, benefits and challenges, and the top projects in this space.

What is LSDfi

Liquid Staking Derivative Finance (LSDfi) is a new concept in decentralized finance (DeFi). Liquid Staking Tokens (LSTs) are decentralized finance (DeFi) instruments that provide liquidity to staked assets in Proof-of-Stake (PoS) networks.

Users receive LSDs equivalent to their staked tokens and potential rewards, which can be traded, transferred, or used as collateral. Liquid Staking Derivative Finance (LSDfi) is the broader ecosystem built around LSTs, incorporating various financial activities and novel uses, like supporting validator decentralization, swaps for interest rates, yield speculation, and efficient risk pricing. Simply put, LTDs are the products used within the larger LSDfi financial system.

It builds on liquid staking derivatives (LSDs) to create new market opportunities related to staking yields, validator monopolies, slashing risks, and even validator censorship. These mechanisms provide unique opportunities for users, promoting healthy competition among validators and preventing one party from monopolizing the consensus layer. LSDfi provides several interesting applications, like validator decentralization mining, validator dominance options, interest rate swaps, yield speculation, and efficient risk pricing. These are just some ways LSDfi can enhance users' experience in the DeFi ecosystem.

In this ever-evolving landscape, staying informed and understanding these new developments becomes crucial. This is why we have penned this comprehensive article on LSDfi. The primary aim of this piece is to provide our readers with a thorough understanding of LSDfi, its potential, its benefits and challenges, and the top projects in this space.


The Potential of LSDfi

At the core of LSDfi are LSTs. LSTs are tokens that users receive when they stake their assets like staked Ethereum. These PoS tokens enhance network security and allow users to earn an additional yield on top of their staking rewards.For example a LSDfi project called UnshETH, generates the extra yield by creating a marketplace for staked ETH liquidity in which LST protocols can compete for ETH by offering the best yield An essential feature of LSTs is that they provide users with both flexibility and liquidity, and users can still reap the benefits of staking crypto without locked assets. LSDs, in essence, represent staked assets and can be traded, loaned, restaked, or used for arbitrage trading on secondary markets.

Imagine you have some Ether (ETH) that you want to stake on the Ethereum network. By staking your ETH, you are helping to secure the network (in a Proof-of-Stake system), and in return, you receive staking rewards. However, traditionally, once you stake your ETH, it's locked up and can't be moved or used for anything else.

This is where LSDfi come in, like those used in the UnshETH project. When you stake your StETH in UnshETH, you receive an equivalent amount of a new token, let's call it uETH (for UnshETH). This uETH represents your staked ETH and any rewards it earns. Now, instead of your original ETH being locked up and unusable, you have uETH, which is liquid. This means you can do things with it: you could trade it for other tokens, lend it out to earn interest, re-stake it to earn more rewards

The field of LSTs is on an impressive growth trajectory. As of May 2023, liquid staking protocols account for a whopping $17 billion . Over a third of all staked Ethereum (ETH) is held in liquid staking. Lido is leading the charge in this space, holding 33% of all staking deposits.

The total market cap of staked Ethereum reached approximately $2 Billion. This fast-growing market segment has surpassed lending in total volume locked (TVL), making it the second-largest decentralized finance (DeFi) service, only trailing behind liquidity in decentralized exchange protocols.

LSDfi Liquid Staking

An important note about liquid staking is its increased popularity thanks to the option to withdraw staked ether from Ethereum validators. This has given a significant confidence boost to users and the Ethereum blockchain overall. Looking at market shares, Lido holds an impressive 31.36% of staked ETH across centralized and decentralized players.

The principle behind LSTs is that they offer users derivatives in return for staking their assets. This system allows users to use their staked assets for trading, lending, and collateral. This decreases the opportunity cost of having assets locked up for staking. Users will be able to Stake Eth receive, SETH and than be able to deposit it in Aave, earning more yield. The adoption and growth of LSTs are likely to continue.


Innovating on LST

LSDfi protocols typically offer two primary products: Loans and Yield Optimizers. Loans are designed to offset themselves or offer disproportionate rewards to loan token holders through staking yields. Yield Optimizers, on the other hand, increase yield to those who contribute to a pool. LSDfi protocols also help LST holders efficiently manage the yield from their staked assets, simplifying technical complexities and reducing gas costs, making it a more user-friendly experience. Yield Optimizers are tools that help manage investments to maximize returns more efficiently than manual means. They are an on-chain asset management protocol that uses data analysis and optimization techniques to auto compound rewards to earn the highest compound interest rate possible. Yield Aggregators are another critical network component in yield farming that allows users to trade through an automated system via liquidity pools instead of the traditional buyer and seller market.

LSDfi Ecosystem


Liquid Staking Derivative Finance (LSDfi) is an emerging trend in the decentralized finance space. With its unique advantages, LSDfi is revolutionizing the way users interact with their staked assets. One of the primary benefits is that LSDfi mechanisms draw upon the distinct characteristics of Liquid Staking Tokens (LSTs), promoting healthier competition among validators. Validator decentralization in the context of blockchain networks refers to the distribution of validator nodes across multiple participants or entities, rather than being controlled by a single central authority. This benefit plays a crucial role in preventing a single party from controlling the consensus layer, thus fostering a more balanced and decentralized ecosystem.

Another significant advantage of LSDfi lies in the flexibility and liquidity it offers to the users. With LSTs, users can continue to enjoy the rewards of staking their cryptocurrency while also having the freedom to utilize their assets more flexibly. This feature allows staked assets to be used for various activities within the ecosystem, such as trading, lending, and collateral. The flexibility ultimately reduces the opportunity cost traditionally associated with locking up assets for staking.

In addition, LSDfi enables a wide range of novel use cases. From mining that supports validator decentralization, dominance options for validators, and swaps for interest rates, to yield speculation and efficient risk pricing, the possibilities are expansive. By fostering competition among Ethereum (ETH) liquid staking protocols, LSDfi is paving the way for a better staking experience for millions of users.


Despite these benefits, it's essential to remember that LSDfi, like all emerging technologies, comes with its own set of challenges. Moreover, the future operation of staking services may face potential challenges that are not yet fully understood.

Lastly, given that LSDfi is a relatively new concept in decentralized finance, unforeseen risks and challenges could arise such as exploits, token economic vulnerabilities,smart contract risk and rehypothecation.

The pace of change in this field is rapid, which underscores the importance of staying informed and educated about these developments. LSDfi presents a promising avenue in the ever-evolving world of decentralized finance, but like all investments, it requires careful consideration of both its potential rewards and risks.

By using LSDfi, users can leverage the unique properties of LSDs, leading to a more democratized and robust cryptocurrency staking ecosystem. Given the promising potential of this innovative sector, we're excited to delve deeper into the world of LSDfi. If you want to explore the case for LSDfi with clear data and figures, read this article first.

Up next, we will spotlight six prominent projects that are making waves in the LSDfi space. These projects offer loans that offset themselves or offer disproportionate rewards, as well as yield optimizers that provide increased returns. They are redefining how we think about staking and yield management in the DeFi landscape.

Best LSDfi Projects

Lybra Finance

The Lybra Protocol (site) is a project aimed at stabilizing the volatile cryptocurrency industry. This project is built upon LSTs and utilizes proof-of-stake ETH and stETH issued by Lido Finance. The protocol is designed to expand its support to additional LST assets over time.

The primary goal of the Lybra Protocol is to introduce a more secure and decentralized stablecoin, eUSD, to the cryptocurrency sector. This stablecoin promises to provide steady interest to its holders, contributing to its stability. As a part of the DeFi ecosystem, the Lybra Protocol allows users to mint eUSD by borrowing against their deposited ETH and stETH. Users must maintain their collateral above 70% otherwise Lybra will liquidate your collateral. In this system, eUSD serves as an over-collateralized stablecoin, providing users with the security and stability they need to confidently conduct their transactions.

One unique feature of the Lybra Protocol is that it offers users the opportunity to earn a stable income by holding minted eUSD. This income is driven by the LST income generated from the deposited ETH and stETH. Essentially, when users deposit ETH or stETH and mint eUSD against these deposits, they receive a steady income in stETH of approximately 5%. This income is then converted to eUSD through the protocol and distributed to the users. The Lybra Protocol is governed by its native token, LBR. Holders of LBR can participate in the protocol's governance and voting processes and share in its revenue. This token can be obtained by buying it on a DEX, earning rewards through minting eUSD, or by becoming an eUSD/ETH liquidity provider.


Revenue for the Lybra Protocol is derived from an annual service fee of 1.5% on the total amount of eUSD in circulation. After this fee is deducted from paying back your collateral, the stETH income generated by the LST that the Lybra Protocol receives is distributed among eUSD holders. The collected service fee is then allocated to the LBR Staking Pool. For instance, if the total eUSD circulation is 1 billion, the annual collected service fee would be 15,000,000 eUSD. If an individual holds 1% of LBR in the LBR Staking Pool, they would receive 150,000 eUSD as their annual Real-Yield.

As of the time of writing , the Lybra Protocol has achieved significant milestones in terms of its market presence, with a Total Value Locked (TVL) of $95 million and a market capitalization of $15 million. This remarkable growth illustrates the confidence that users have in the protocol and its potential to redefine the DeFi ecosystem.

How does Lybra Work

Pendle Finance

Pendle Finance allows users to tokenize and trade future yields from their yield-generating assets. In simple terms, Pendle lets users separate the future yield (income) from their assets and trade it with others. This way, users can lock in profits, receive upfront cash, or gain exposure to future yields from different assets. The platform offers an Automated Market Maker (AMM) designed specifically for yield trading, making it easier for users to manage their yield exposure and actively trade in the DeFi market. Pendle Finance brings several exciting new ideas to the world of DeFi. One of these is Yield Tokenization. This is like wrapping up your assets that generate profits into a standard form, then dividing it into two parts: the original money you put in (principal tokens) and the future profits (yield tokens). This process lets users trade their future profits and manage their investments more effectively.

To truly grasp how Pendle operates and creates a profitable market in the digital finance world, it's important to understand specific terms unique to this platform. Terms like SY (Standardized Yield), PT (Principal Token), and YT (Yield Token) are fundamental to Pendle's workings. A handbook on yield trading can be found here to help clarify how Pendle operates. If you own profit-generating tokens, like aUSDC,stEth, SLP, and gOHM, you can deposit these into Pendle. The platform transforms these tokens into a Standardized Yield (SY) token. This kind of token simplifies interactions with the profit-generating mechanism of the asset, and it's divided into two parts: the Principal Token (PT) and the Yield Token (YT). This means that those who deposit profit-generating tokens into Pendle can create both a principal and yield token.

The yield token can be utilized in various ways. For instance, you can deposit the YT into Pendle's automated trading system to contribute funds to the platform. In return, you'll earn swap fees and other Pendle incentives. Pendle also enables you to sell your YT for immediate cash, allowing you to set interest rates and lock in profits immediately. Alternatively, Pendle users can buy yield tokens directly without owning a profit-generating token.

With the yield token, which signifies the owner's right to potential profits, Pendle creates an efficient profit market. Traders, or new owners, can participate in future yield trading. They can enhance their profit exposure when the market is bullish and safeguard themselves against profit risks when it is bearish. Traders can gain exposure to future yield, enhancing their yield exposure in bullish conditions and hedging against yield risks during bearish conditions.

Pendle Finance


UnshETH is an innovative, decentralized protocol that's all about creating a more balanced, decentralized network of validators. Simply put, it's a marketplace for staked ETH liquidity that leverages incentives to ensure a fair distribution of resources across the Liquid Staking Tokens (LSTs) ecosystem. To break that down a bit, UnshETH is looking to shake things up and stop one single LST from dominating the Ethereum network. By using a system of incentives, the protocol is structured to distribute resources more evenly throughout the LST ecosystem, which in turn promotes a balanced network of validators.


Essentially, UnshETH acts as a kind of "index" for staked ETH. This means that users can mint and redeem unshETH tokens across a range of different Liquid Staking Tokens. This ability to distribute assets across various LSTs is part of what allows UnshETH to foster healthy competition among ETH liquid staking protocols and deliver a top-tier ETH staking experience for millions of users. At its core, the mission of UnshETH is to incentivize decentralization, to make sure that the nodes validating transactions on the Ethereum network stay distributed and secure. This commitment to decentralization extends to the protocol's recent expansion to the BNB Chain, which offers users access to deep liquidity from various sources.

UnshETH is also gaining traction in terms of Total Value Locked (TVL), which stands at an impressive $33.49 million.The total market cap for the protocol is around $16.07 million. In light of this growth, the team has recently launched UnshETH v2, a substantial technological upgrade aimed at further enhancing the protocol's decentralization, yield, and security.

Additionally, the protocol has been listed on Poloniex, an online platform for cryptocurrency trading. The team at UnshETH is continually working on initiatives to make the industry more accessible to all, from institutional investors and small investors to end-users and developers. UnshETH is a forward-thinking protocol that's centered on promoting a more decentralized network. It's already seen significant progress and stands as a promising player in the Liquid Staking Derivatives space.

LSTs Benefits

Origin Protocol

Origin Protocol (website) is a blockchain-based platform that enables the creation of peer-to-peer, decentralized marketplaces. The platform has two primary products: Origin Dollar (OUSD), a yield-bearing stablecoin, and Origin Story, an NFT platform. OUSD is a stablecoin that is backed 1:1 by USDT, USDC, and DAI, and OETH is a stablecoin that is backed 1:1 by Ether and liquid staking derivatives like stETH, rETH, and sfrxETH.

OUSD is an elastic supply stablecoin that automatically rebalances and reduces in your wallet while passively generating a yield. By holding OUSD, owners will notice their wallet balance slowly increasing. When minting OUSD, users deposit other stablecoins, which are automatically deployed across the DeFi ecosystem.

There is no need for staking, locking up stablecoins, or collecting yield as long as you're holding OUSD. Wallet balances increase automatically at least once per day. If you hold OUSD in a smart contract, you will need to opt-in to receive the yield by making a one-time function call.

Origin Protocol

Origin Protocol has a strong team, including entrepreneurs Josh Fraser and Matthew Liu, and Yu Pan, a former co-founder of Paypal. The company has raised over $28.4 million in a strategic sale round from Foundation Capital, Pantera Capital and many other angels. Origin Protocol has also partnered with over 45 marketplace partners to build on its platform using Origin.js and its associated smart contracts.

Recently, Origin Protocol launched Origin Ether (OETH), a new-age Ethereum yield aggregator that combines the yield-generating functions of the largest liquid staking derivatives. In terms of market size, the current market cap of Origin Protocol is $47.32 million. The price of OGN has rallied 143% in the past month.

Origin Protocol is an innovative platform that enables the creation of decentralized marketplaces and offers stablecoins that generate yield. The platform has a strong team and has raised significant funding from strategic partners. Recent developments include the launch of Origin Ether and the platform's participation in NFT royalty wars.

Origin How it works

Gravita Protocol

Gravita Protocol (website) is a novel borrowing protocol built on the Ethereum blockchain. Its primary function is to offer interest-free loans, backed by LST and a Stability Pool (SP). It's essentially a platform where users can create GRAI tokens, which are designed to have their volatility managed similarly to LUSD, using the value of their collateral. A key goal of the protocol is to give support to less dominant liquid staking tokens, thereby promoting increased decentralization in the Ethereum ecosystem.

What sets Gravita Protocol apart is its innovation in providing an on-chain solution for interest-free stablecoin borrowing for Ethereum liquid staking tokens. A standout feature is its unique multi-collateral design. This allows users to borrow against a variety of assets, while keeping separate positions for each. While the exact team behind Gravita Protocol isn't clear from the information available, what we do know is that they've been audited by industry leaders in blockchain security. This shows their commitment to maintaining the safety and reliability of the platform.

Gravita Protocol has been gaining attention in terms of both publicity and integrations. The protocol and its token itself hasn't officially launched yet, but anticipation is building. However, there's no specific information available yet regarding the protocol's financial backing. The current market cap for Gravita Protocol isn't known and neither is its circulating supply. The price of its GRAI token, though, is available and sits at approximately $0.988465 USD.

Gravita Token

As for its current status and recent developments, Gravita Protocol has announced that it will support Wrapped Ether (WETH) upon launch. This is noteworthy as WETH will be the only non-yield-generating asset supported by the protocol. For users, there are opportunities to earn money on Gravita by providing liquidity to the Stability Pool. This pool functions to repay the debts of liquidated Vessels that exceed the maximum Loan-to-Value (LTV) ratio. Additionally, Gravita Protocol is aiming to enhance decentralization by allowing multiple LSTs to be used as collateral.

Gravita Protocol is shaping up to be an innovative addition to the decentralized finance space, offering unique features that promote decentralization and provide solutions for interest-free borrowing.

How it works

Zero Liquid

Zero Liquid (website) is an innovative decentralized protocol designed to offer interest-free, liquidation-free, and self-repaying loans using Liquid Staking Tokens (LSTs). Essentially, it provides users with an opportunity to issue loans against their LSD assets as collateral. The groundbreaking aspect of this protocol is that it offers synthetic tokens which can be openly traded in the market, thereby providing instant liquidity.

The core of the Zero Liquid protocol revolves around ZeroLoan, a unique system where users deposit yield-bearing LSTs like ETH or MATIC, which are then converted into LSTs. As a response, ZeroVaults issue a synthetic asset equivalent to the LST deposit. For instance, with Lido Finance's LST stETH, the protocol would generate a corresponding zETH. This functionality applies to other LSD tokens as well. If users deposit stETH, or ETH that is subsequently converted to stETH or other selected LSD tokens by ZeroVaults, they can borrow up to 50% of their collateral's value in zETH. Meaning, for every 1 stETH deposited, up to 0.5 zETH can be borrowed.

To maintain the self-repaying feature, the protocol consistently harvests stETH to repay the depositors' debts. This is accomplished by crediting users' accounts with a share of the harvest proportional to their debt, effectively reducing it. The system also offers flexibility. Users can choose to repay any amount of their debt at any given time, which enables them to retrieve their collateral. In addition, ZeroLoans consider LSTs like stETH or rETH as equal to their underlying assets. This introduces a price-restoring mechanism for users if the price of the LSD token drops below its peg. Users can buy the token at a discount from automated market makers and use it to clear their debt.

The platform is still not live, but their token is. According to Coingecko, the token’s market cap is currently around $3 Million. At token launch the supply of $ZERO was a 100 million, A burn proposal was submitted and approved by the community, subject to which 69.420% supply of $ZERO will get burned over 36 months which will reduce the total supply of ZERO to 30.5M instead of 100M.


Moreover, users have the option to liquidate a part or all of their collateral whenever they wish. ZeroLoans grants users a flexible line of credit that helps generate yield from their collateral. Unlike traditional lending platforms, users have the freedom to enter and exit positions without being tied to lengthy lockup periods. The platform also ensures that a user's collateral will never be liquidated unless they opt to do so.

How it works

Final Thoughts

Liquid Staking Derivative Finance (LSDfi) continue to drive remarkable innovations in the cryptocurrency and blockchain landscape. This article has touched on the exciting potential and unique opportunities provided by LSDfi, and five of the most promising projects leveraging this technology: Lybra Finance, unshETH, Origin Protocol, Gravita Protocol, and Zero Liquid.

The common thread among these projects is the innovative use of LSTs to create value. They are all developing ways to leverage the liquidity and flexibility of LSTs, with a particular focus on supporting decentralization, fostering competition among validators, and minimizing centralization risk. Whether it's through providing interest-free loans, yield-bearing stablecoins, or flexible, liquidation-free loans, each of these projects is using LSDs to democratize finance and drive user benefits in new and exciting ways.

Lybra Finance and Origin Protocol are creating stability in the volatile cryptocurrency industry with their stablecoins, eUSD and OUSD/OETH respectively. UnshETH and Gravita Protocol aim at fostering decentralization by promoting a balanced network of validators and supporting less dominant liquid staking tokens. Lastly, Zero Liquid is making headway by offering interest-free, liquidation-free, self-repaying loans with liquid staking tokens, thereby creating instant liquidity for users.

However, as noted earlier, with the growth and potential of this technology, there are also challenges to be mindful of, such as potential centralization risks and unforeseen issues that might arise as this nascent sector evolves. It's therefore crucial for potential investors and users to keep themselves updated and informed about developments in this fast-moving space.

Looking ahead, as more networks begin to use liquid staked tokens and LSDfi continues to grow, the potential for innovation and disruption in the entire DeFi space is enormous. This growth will bring about a new era of financial services that are more open, inclusive, and beneficial to users around the world.

Growth of LSDfi

Disclaimer: Nothing on this site should be construed as a financial investment recommendation. It’s important to understand that investing is a high-risk activity. Investments expose money to potential loss.



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